Case Reveals How Wall Street Banks Cheated Municipalities out of Billions of Dollars


The former co-head of UBS AG’s municipal-derivatives group, and two ex-colleagues are defendants in a municipal bond bid-rigging case being tried before U.S. District Judge Kimba Wood in Manhattan (“Ex-UBS execs on trial in muni bid-rigging case,” InvestmentNews).

The trial stems from a nationwide probe of bid-rigging involving Wall Street banks and brokers. Bank of America, JPMorgan Chase, UBS, Wells Fargo & Co. and GE Funding Capital Market Services have paid more than $700 million to settle claims by the government. CDR Financial Corp. and 13 individuals plead guilty to criminal charges.

In addition, three former GE bankers were convicted by a federal jury in Manhattan of conspiracy to commit fraud by manipulating auctions for municipal-bond investment contracts. The bankers evidently sought to rig bidding by giving kickbacks to brokers hired by local governments to solicit bids.

The UBS individual defendants are charged with “long-running conspiracies and schemes to defraud” municipal-bond issuers and U.S. tax authorities by fixing prices for investing proceeds of municipal-bond sales.

“We are here because cities and towns across America were cheated out of public money,” Kalina Tulley, a Justice Department lawyer, was quoted as telling jurors, adding: “The evidence will show that these defendants lied and cheated and that these cities and towns were defrauded.”

Prosecutors said they expect to prove “the knowing and active participation” of UBS, JPMorgan Chase & Co., Bank of America Corp. and General Electric Co. in the fraud alleged against the three individual defendants.

Prosecutors said they will introduce recorded conversations between the banker-defendants and brokers hired by local governments, as they did in the GE bankers case. That evidence is expected to show how they manipulated rates on the investment contracts, which cheated states, counties and towns out of billions of dollars.

The government has alleged that bidders on investment contracts were often given “last looks” at other bids, intentionally submitted losing bids and steered investment contracts in exchange for kickbacks or favorable treatment on future auctions.

Page Perry is an Atlanta-based law firm with over 170 years of collective experience maintaining integrity in the investment markets and protecting investor rights.